Atlas Air reports increased net income to $184 mn in Q4
Atlas Air Worldwide Holdings announced strong increases in volumes, revenue and earnings for the fourth quarter and full year of 2020. These results were driven by ongoing demand for their assets and services and their operational execution. The company also provided an outlook for first-quarter 2021 earnings growth.
On a reported basis, net income totaled $184 million, or $6.15 per diluted share, for the three months ended December 31, 2020. Results compare with a reported loss of $410.2 million, or $15.86 per diluted share, for the three months ended December 31, 2019, which was primarily due to a noncash special charge of $616.2 million ($485.2 million after tax).
On an adjusted basis, EBITDA rose to $279.7 million in the fourth quarter of 2020 compared with $204.7 million in the prior-year period. Adjusted net income increased to $143.2 million, or $4.83 per diluted share, in the fourth quarter of 2020 compared with $98.2 million, or $3.80 per diluted share, in the prior-year period.
“We finished this unprecedented year on a strong note, with financial and operating results that exceeded our expectations. I’d like to thank everyone at Atlas for stepping up to deliver an extraordinary peak season and full year for our business and our customers,” said president and chief executive officer John Dietrich.
Dietrich explained, “In the face of unrelenting operational complexities driven by the Covid-19 pandemic, we added widebody capacity, increased aircraft utilisation and grew block hours to carry historic volumes, including essential goods that businesses, communities and individuals require as well as holiday e-commerce packages.
"We are leveraging our unrivaled portfolio of assets and the scale of our global network. We are also continuing to diversify our customer base and have entered into numerous long-term charter agreements with strategic customers, such as Cainiao, Flexport and HP Inc. These agreements will provide reliable and attractive revenue streams for the years ahead. Providing our customers with modern, fuel-efficient aircraft has been a longstanding priority at Atlas, and we were excited to announce that we ordered four new 747-8Fs from Boeing. This acquisition underscores that commitment and also demonstrates our focus on environmental stewardship through the reduction of aircraft noise, emissions and fuel consumption. The 747-8F provides 20 per cent higher payload capacity and 16 per cent lower fuel consumption than the very capable 747-400F, and has 25 per cent higher capacity than the new-technology 777-200LRF. In addition, the advanced engines on the 747-8F reduce noise by approximately 30 per cent compared to the previous generation of aircraft," he continued.
“As the world’s largest 747 freighter operator, the -8F is core to our business, and complements our diverse fleet of 747-400s, 777s, 767s and 737s. We are expecting delivery of these new aircraft from May through October 2022, and they will play a key role in advancing Atlas’ strategic growth plans for decades to come.”
He concluded: “The strong demand for our aircraft and services has continued into this quarter. We expect to fly approximately 85,000 block hours in the first quarter of 2021, with revenue of approximately $820 million, and adjusted EBITDA of about $150 million. In addition, we expect first-quarter 2021 adjusted net income to grow approximately 60 per cent to 65 per cent compared with adjusted net income of $29.9 million in the first quarter of 2020.*
“Due to ongoing uncertainty related to the pandemic and associated market dynamics, including ever-changing border restrictions, new variants of Covid-19 and surges in cases globally, we are not providing a full-year 2021 earnings outlook at this time.”
Volumes in the fourth quarter of 2020 increased to 96,079 block hours compared with 84,488 in the fourth quarter of 2019, with revenue growing to $932.5 million versus $747.0 million in 2019.
ACMI segment revenue during the period primarily reflected lower levels of flying driven by the redeployment of 747-400 aircraft to the Charter segment to support long-term charter programmes with customers seeking to secure committed cargo capacity. This was partially offset by an increase in aircraft utilisation and higher CMI flying.
ACMI segment contribution included higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by Covid-19 and increased pay rates we provided to their pilots in May 2020. In addition, ACMI segment contribution reflected higher heavy maintenance expense, including additional engine overhauls performed to take advantage of slot availability and vendor pricing discounts, and the redeployment of 747-400 aircraft to the Charter segment. These items were partially offset by increased aircraft utilisation and an increase in CMI flying.
Higher Charter segment revenue during the quarter was primarily due to an increase in flying, partially offset by a slight decrease in the average revenue per block hour due to lower fuel costs.
Charter segment contribution was primarily driven by an increase in commercial cargo yields (excluding fuel) and demand for our services, reflecting a reduction of available cargo capacity in the market, the disruption of global supply chains due to the pandemic and our ability to increase aircraft utilisation. In addition, segment contribution benefited from a reduction in aircraft rent and depreciation, the redeployment of 747-400 aircraft from the ACMI segment and the operation of a 777-200 freighter previously in their Dry Leasing business. These improvements were partially offset by: higher heavy maintenance expense, including additional engine overhauls performed to take advantage of slot availability and vendor pricing discounts; fewer charters for sports teams and fans as sports leagues cancelled games; higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by Covid-19; and increased pay rates they provided to their pilots in May 2020.
In Dry Leasing, lower segment revenue and contribution in the fourth quarter of 2020 primarily related to changes in leases and the disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020. Lower unallocated income and expenses, net, during the quarter primarily reflected CARES Act grant income of $67.2 million. Reported results in the fourth quarter of 2020 included an effective income tax rate of 24.1 per cent. On an adjusted basis, our results reflected an effective income tax rate of 23.9 per cent.
Volumes in 2020 grew to 344,821 block hours compared with 321,140 in 2019, with revenue increasing to $3.21 billion in 2020 from $2.74 billion in 2019.
For the twelve months ended December 31, 2020, the airline's reported net income totaled $360.3 million, or $13.50 per diluted share, which included a $71.1 million unrealized loss on financial instruments. Reported results for the twelve months ended December 31, 2019, reflected a net loss of $293.1 million, or $11.35 per diluted share, which included a noncash special charge of $638.4 million ($503.1 million after tax), partially offset by an unrealized gain on financial instruments of $75.1 million.
On an adjusted basis, EBITDA grew to $844.2 million in 2020 compared with $504.8 million in 2019. For the twelve months ended December 31, 2020, adjusted net income increased to $379.0 million, or $13.67 per diluted share, compared with $139.6 million, or $5.24 per diluted share, in 2019. Reported results in 2020 included an effective income tax rate of 27.5 per cent. On an adjusted basis, our results reflected an effective income tax rate of 22.9 per cent.
On December 31, 2020, their cash and cash equivalents, short-term investments and restricted cash totaled $856.3 million, compared with $114.3 million on December 31, 2019.
The improved cash balance primarily reflected cash provided by operating activities, and also included the funds we received through the Payroll Support Program available to air cargo carriers under the CARES Act, partially offset by cash used for investing and financing activities.
Net cash used for investing activities during 2020 primarily related to capital expenditures and payments for flight equipment and modifications, including spare engines and GEnx engine performance upgrade kits, partially offset by proceeds from the disposal of nonessential aircraft. Net cash used for financing activities during the year primarily related to payments on debt obligations, including our revolving credit facility, partially offset by debt issuances.
On October 9, 2020, Amazon elected a cashless exercise with respect to 3,607,477 shares vested under a Warrant issued in 2016. As a result, Amazon acquired 1,375,421 shares of AAWW common stock.
On January 27, 2021, Amazon elected a cashless exercise with respect to 4,150,529 shares vested under Warrants issued in 2016. As a result, Amazon acquired 1,280,450 shares of AAWW common stock.
Our work continues to complete a new joint collective bargaining agreement with our pilots in connection with the merger between Atlas Air and Southern Air. Formal negotiations with the pilots’ union have recently concluded, and we are moving on to binding interest arbitration on the remaining open issues. This arbitration is scheduled to begin in mid-March 2021.
The company expects to fly approximately 85,000 block hours in the first quarter of 2021, with revenue of approximately $820 million, and adjusted EBITDA of about $150 million. In addition, they expect first-quarter 2021 adjusted net income to grow approximately 60 per cent to 65 per cent compared with adjusted net income of $29.9 million in the first quarter of 2020.*
Atlas Air anticipates first-quarter results to continue to be impacted by ongoing pandemic-related expenses, including pilot premium pay and operational costs for providing a safe working environment for their employees. They also expect higher pilot costs related to increased pay rates we provided to our pilots in May 2020 and higher scheduled heavy maintenance expense.
For the full year in 2021, the company expects aircraft maintenance expense to be lower than 2020, and depreciation and amortization to total about $270 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $110 to $120 million, mainly for parts and components for the fleet.
Committed expenditures to acquire aircraft and spare engines are expected to be $264.7 million in 2021. These expenditures include 747-400 passenger aircraft (to be used for replacement of older passenger aircraft as well as engines and spare parts), spare engines, and our January 2021 agreement to purchase four 747-8F aircraft from Boeing that are expected to be delivered from May 2022 through October 2022.
Due to ongoing uncertainty related to the pandemic and associated market dynamics, including ever-changing border restrictions, new variants of Covid-19 and surges in cases globally, the company is not providing a full-year 2021 earnings outlook at this time. They will provide updates as the year progresses.
They provide guidance on an adjusted basis because they are unable to predict, with reasonable certainty, the effects of future gains and losses on asset sales, special charges and other unanticipated items that could be material to their reported results.*